WHAT ARE MY MORTGAGE OPTIONS?
Especially as a first timer, you might find yourself getting confused about the options available for financing your dream home.
But with all the options between government backed loans and more traditional ones, it can be hard to know where to start.
These super-sized loans are definitely not for everyone, but if you are looking to buy a property which requires a larger than $424,100, then you will be in need of one of these.
As you might be expecting, you will need a crystal clear credit score and a lower debt to income ratio, to qualify, than for some of the other, smaller loans.
Put simply, these are the smaller loans, which ‘conform’ to the usual conditions that are underwritten by government lenders like Freddie Mac and Fannie Mae.
This is a loan which is backed by the US department of Veteran Affairs.
Intended primarily for service personnel and ex service personnel, widowed spouses may also apply in some circumstances too.
The advantages of a VA loan might be as simple as being the only option available to a lot of ex service personnel, for financial reasons.
The main advantage is in being able to get a 100% loan on a property. This is not a small attraction to this program!
Although the VA department do not mind about a person’s credit scoring, in order to qualify for the loan, it is still likely to be the case that the actual lender will do.
The loan is guaranteed by the VA department only, it doesn’t actually come from them.
Another government backed loan, this time guaranteed by the Federal Housing Administration (FHA).
One of the best points about this, is that your deposit could be as little as 3.5%.
And even with the additional cost of mortgage insurance added to the loan, it could still be well worth it.
This is the loan offered by the United States Department of Agriculture for people in mainly rural areas, who might find it hard to qualify for any other type of loan.
ADJUSTABLE RATE MORTGAGE
The key advantage of these is that you will probably get an attractive introductory rate for the first year or two.
The disadvantage, is that you are at the mercy of the rates potentially going up, maybe by a lot, during the duration of the mortgage.
Sometimes, people taking out ARMs plan on selling after a short period, so this arrangement can work out very well for them and is still considerably cheaper than renting is.
FIXED RATE MORTGAGE
The opposite of an adjustable rate mortgage is a fixed rate mortgage. This gives you the peace of mind of paying the same rate for the duration of the mortgage, no matter what happens with interest rates.
As a trade-off for this security, they will often be a less alluring rate than the ARMs.
A fixed rate mortgage may be best for anyone on a fixed income, who definitely cannot afford to gamble with interest rates and is possibly considering staying in their home for some time.